Top findings from Q2 2016
“Keep calm and carry on.” The iconic poster was meant to boost British citizens’ morale during the Second World War. But that maxim is just as apt now, in the wake of the Brexit vote and other tumultuous developments around the globe — including the heady election season here at home.
So, how are private companies reacting to all this?
It’s worth knowing. In the 21 years we’ve been running this survey, we’ve found that what private companies — still the core of the US economy — are thinking and planning can give us useful hints about where the nation overall is heading.
With respect to where the economy, specifically, is heading, a mixture of concern and uncertainty has been the prevailing sentiment among private companies this past quarter. Trendsetter businesses nonetheless remain confident in their growth prospects and that of their industries. We can see this in their investment plans and ongoing commitment to globalization. And although fewer are hiring, more are planning an uptick in expansion. In short, for all their uncertainty, private companies continue to drive the economy with a sure hand.
PwC's Ken Esch, Private Company Services Partner, discusses the Trendsetter Barometer survey and highlights key findings from US private companies in the second quarter of 2016.
Private companies continue to feel lukewarm about the current economy. The good news? Their confidence about the economy’s future has stopped plunging — a welcome contrast to the precipitous drop in Trendsetter optimism over the prior two quarters. It’s also a relief, since private-company sentiment about the direction of the US economy, in particular, is a leading indicator of US GDP growth a year on.
Their relative uncertainty about the economy notwithstanding, almost all private companies (91%) now forecast positive revenue growth. The last time we saw that high a number was in the first quarter of 2007.
The caveat? Far more Trendsetter companies than usual are projecting single-digit growth compared with those forecasting double-digit growth. And their expected rate of growth has slowed to 6.3%. But that’s still three times faster than US GDP is expected to grow this year.
Although their gut feeling about the economy is not a good one right now, one-fifth of private companies initiated new financing in the second quarter while interest rates remained historically low. Where will private companies spend their money? More than one-quarter say they’ll make major capital expenditures, putting an average of 8.4% of their total sales revenue toward those investments — a post-recession high. Another post-recession high is the number of Trendsetter companies saying they’ll increase their operational spending (77%).
This past quarter, just four in ten businesses told us they expected to hire over the next 12 months. As a one-year leading indicator of changes in US payrolls, Trendsetter hiring plans suggest that fewer businesses in general will be adding headcount until at least mid-2017.
Another leading indicator by one year — Trendsetter companies’ planned wage increases for the next 12 months — remained essentially flat, too, falling slightly from 2.72% to 2.29% in the second quarter. This suggests that wages will stay flat in the wider workforce through the start of next summer.
On the bright side, most private companies aren’t planning to lay anyone off. In fact, Trendsetter firms that expect to keep staffing at current levels jumped from 41% to 53% this past quarter.
Despite their clear misgivings about the world economy, private companies that sell abroad are fairly upbeat about their own prospects. They expect their revenue to grow by 7.5% over the next year, with 21% of it coming from international sales. They’re also showing greater appetite for capex and operational spending than their domestic-only peers. International marketers are especially keen to increase spending on growth activities like geographic expansion, R&D, and new products and services, signaling long-term confidence that looks beyond current economic conditions.
Video: How private companies lead GDP growth, wages, hiring and the broader economy
Hear about the leading indicators in PwC’s quarterly Trendsetter Barometer survey, including those related to employment and economic growth.